Helicopter Drop

AAA |

DEFINITION of 'Helicopter Drop'

A hypothetical, unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy. Helicopter drop is largely a metaphor for unconventional measures to jumpstart the economy during deflationary periods. While “helicopter drop” was first mentioned by noted economist Milton Friedman, it gained popularity after Ben Bernanke made a passing reference to it in a November 2002 speech, when he was a new Federal Reserve governor. That single reference earned Bernanke the sobriquet of “Helicopter Ben,” a nickname that stayed with him during much of his tenure as a Fed member and Fed chairman.

INVESTOPEDIA EXPLAINS 'Helicopter Drop'

Bernanke’s reference to “helicopter drop” occurred in a 2002 speech that he made to the National Economists Club, about measures that could be used to combat deflation. In that speech, Bernanke defined deflation as a side effect of a collapse in aggregate demand, or such a severe curtailment in consumer spending that producers would have to cut prices on an ongoing basis to find buyers. He also said the effectiveness of anti-deflation policy could be enhanced by cooperation between monetary and fiscal authorities, and referred to a broad-based tax cut as “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”

Even though Bernanke’s critics subsequently used this reference to disparage his economic policies, they were effectively silenced by his adroit handling of the U.S. economy during and after the Great Recession of 2008-09. Faced with the biggest recession since the 1930s, and with the U.S. economy on the brink of catastrophe, Bernanke used some of the very same methods outlined in his 2002 speech to combat the slowdown, such as expanding the scale and scope of the Fed’s asset purchases.

Bernanke also embarked on successive rounds of “quantitative easing” (QE) that injected trillions of dollars into the U.S. economy from 2009 onwards through sustained purchases of mortgage-backed bonds and Treasuries. These QE measures differ from the helicopter drop in that the Federal Reserve has a greater degree of control over their eventual reversal.